Post on 28-Jan-2021
Hearing Date & Time: July 28, 2009 at 9:45 A.M. (ET) Objection Deadline: July 24, 2009 at 4:00 P.M. (ET)
AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park New York, New York 10036 (212) 872-1000 (Telephone) (212) 872-1002 (Facsimile) Daniel H. GoldenPhilip C. DublinMeredith A. Lahaie
Counsel for the Official Committee of Unsecured Creditors
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------x : In re: : Chapter 11 : Chemtura Corporation, et al. : Case No. 09-11233 (REG) : Debtors. : (Jointly Administered) ---------------------------------------------------------------x
NOTICE OF MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF CHEMTURA CORPORATION, ETAL. PURSUANT TO 11 U.S.C. §§ 105(a), 1103(c) AND 1109(b), FOR
ENTRY OF AN ORDER GRANTING LEAVE, STANDING AND AUTHORITY TO PROSECUTE AND, IF APPROPRIATE, SETTLE CAUSES OF ACTION ON BEHALF OF THE DEBTORS’ ESTATES
PLEASE TAKE NOTICE that a hearing on the Motion of the Official Committee of
Unsecured Creditors (the “Committee”) of Chemtura Corporation, et al. (collectively, the
“Debtors”), Pursuant to 11 U.S.C. §§ 105(a), 1103(c) and 1109(b), for entry of an order (the
“Order”) granting leave, standing and authority to prosecute and, if appropriate, settle causes of
action on behalf of the Debtors’ estates (the “Motion”), will be held before the Honorable Robert
E. Gerber, United States Bankruptcy Judge, United States Bankruptcy Court for the Southern
Administrator¿0ñ{,A)'0 %j½
Administrator0911233090716000000000005
2
District of New York (the “Court”), Alexander Hamilton Custom House, One Bowling Green,
Room 621, New York, New York on July 28, 2009 at 9:45 a.m. (ET).
PLEASE TAKE FURTHER NOTICE that objections, if any, to the relief requested in the
Motion must comply with the Bankruptcy Rules and the Local Rules of the United States
Bankruptcy Court for the Southern District of New York, must be set forth in a writing
describing the basis therefor and must be filed with the Court electronically in accordance with
General Orders M-182 and M-193 by registered users of the Court’s electronic case filing system
(the User’s Manual for the Electronic Case Filing System can be found at
http://www.nysb.uscourts.gov, the official website of the Court) and, by all other parties in
interest, on a 3 ½ inch disk, preferably in Portable Document Format (PDF), WordPerfect or any
other Windows-based word processing format (with a hard copy delivered directly to Chambers)
and served in accordance with General Order M-182 or by first-class mail upon each of the
following: (i) counsel to the Committee, Akin Gump Strauss Hauer & Feld LLP, One Bryant
Park, New York, New York 10036, Attn: Daniel H. Golden, Esq. and Philip C. Dublin, Esq.;
(ii) the Office of the United States Trustee for the Southern District of New York, 33 Whitehall
Street, 21st Floor, New York, New York 10004, Attn.: Susan Golden, Esq.; (iii) counsel for the
Debtors, Kirkland & Ellis LLP, Citigroup Center, 153 East 53rd Street, New York, New York
10022, Attn.: M. Natasha Labovitz; (iv) counsel to the agent for the Debtors’ postpetition and
prepetition secured lenders, Shearman & Sterling LLP, 599 Lexington Avenue, New York, New
York, 10022, Attn: Fred Sosnick, Esq.; and (v) all those persons and entities that have formally
requested notice by filing a writing request for notice, pursuant to Bankruptcy Rule 2002 and the
Local Bankruptcy Rules, so as to be received no later than 4:00 p.m. (ET) on July 24, 2009.
Only those responses that are timely filed, served and received will be considered at the hearing.
3
Failure to file a timely objection may result in entry of a final order granting the Motion as
requested by the Committee.
Dated: New York, New York Respectfully submitted, July 16, 2009
AKIN GUMP STRAUSS HAUER & FELD LLP
By: /s/ Daniel H. Golden Daniel H. GoldenPhilip C. Dublin) Meredith A. LahaieAkin Gump Strauss Hauer & Feld LLP One Bryant Park New York, New York 10036 (212) 872-1000 (Telephone) (212) 872-1002 (Facsimile) dgolden@akingump.compdublin@akingump.commlahaie@akingump.com
Counsel for the Official Committee of Unsecured Creditors
Hearing Date & Time: July 28, 2009 at 9:45 A.M. (ET) Objection Deadline: July 24, 2009 at 4:00 P.M. (ET)
AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park New York, New York 10036 (212) 872-1000 (Telephone) (212) 872-1002 (Facsimile) Daniel H. GoldenPhilip C. DublinMeredith A. Lahaie
Counsel for the Official Committee of Unsecured Creditors
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------x : In re: : Chapter 11 : Chemtura Corporation, et al. : Case No. 09-11233 (REG) : Debtors. : (Jointly Administered) ---------------------------------------------------------------x
MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF CHEMTURA CORPORATION, ET AL.,PURSUANT TO 11 U.S.C. §§ 105(a), 1103(c) AND 1109(b),
FOR ENTRY OF AN ORDER GRANTING LEAVE, STANDING AND AUTHORITY TO PROSECUTE AND, IF APPROPRIATE,
SETTLE CAUSES OF ACTION ON BEHALF OF THE DEBTORS’ ESTATES
i
TABLE OF CONTENTS
PRELIMINARY STATEMENT.......................................................................................................1
JURISDICTION AND VENUE ......................................................................................................3
BACKGROUND .............................................................................................................................4
A. The Debtors’ Prepetition Capital Structure..............................................................4
1. The Prepetition Credit Facility.....................................................................4
2. The Notes .....................................................................................................6
B. The Debtors’ Financial Distress in 2008 and the Granting of the Inventory Lien ................................................................................6
C. Secured Obligation Cap ...........................................................................................7
D. The Debtors’ Liquidity Crisis and the Establishment of the New Receivables Facility .................................................................................................8
E. The Cash Payments................................................................................................11
F. Chapter 11 Filings and Final DIP Order ................................................................12
RELIEF REQUESTED..................................................................................................................13
BASIS FOR RELIEF.....................................................................................................................13
A. Standard for Derivative Standing...........................................................................13
B. The Committee Clearly Satisfies the Test for Derivative Standing With Respect to the Preference Claims ..........................................................................16
1. The Preference Claims Are Colorable .......................................................16
2. Demand and the Debtors’ Consent to Assert the Preference Claims .....................................................................20
3. The Committee is Seeking Prior Court Approval to Prosecute the Preference Claims ...........................................21
C. Additional Considerations .....................................................................................21
RESERVATION OF RIGHTS .......................................................................................................23
NOTICE.........................................................................................................................................23
NO PRIOR REQUEST..................................................................................................................23
ii
TABLE OF AUTHORITIES
CASES
Adelphia Commc'ns Corp. v. Bank of America, N.A. (In re Adelphia Commc'ns Corp.), 330 B.R. 364 (Bankr. S.D.N.Y. 2005) ................................................14, 16, 23
In re Aerco Metals, 60 B.R. 77 (Bankr. N.D. Tex. 1985)..................................................17
In re Colfor, Inc., No. 96-60306, 1998 WL 70718 (Bankr. N.D. Ohio Jan. 5, 1998) ............................................................................................................................16
Goldberg v. Such (In re Keplinger), 284 B.R. 344 (Bankr. N.D.N.Y. 2002) ....................19
Harris v. Penesi (In re Harris), No. 01-10365, 2003 WL 25795591 (Bankr. N.D.N.Y. Mar. 11, 2003) .............................................................................................19
In re iPCS, Inc., 297 B.R. 283 (Bankr. N.D. Ga. 2003) ..............................................16, 17
La. World Exposition, Inc. v. Fed. Ins. Co. (In re La. World Exposition, Inc.), 832 F.2d 1391 (5th Cir. 1987) ............................................................................................15
Lawson v. Ford Motor Co. (In re Roblin Indus., Inc.), 78 F.3d 30 (2d Cir. 1996)............18
Motorola, Inc. v. Official Comm. of Unsecured Creditors and JP Morgan Chase Bank, N.A. (In re Iridium Operating LLC), 478 F.3d 452 (2d Cir. 2007) .............21, 22
Official Comm. of Unsecured Creditors of America's Hobby Ctr., Inc. v. Hudson United Bank (In re America's Hobby Ctr., Inc.), 223 B.R. 275 (Bankr. S.D.N.Y. 1998) ......................................................................................................16, 17
Official Comm. of Unsecured Creditors of Cybergenics Corp. v. Chinery, 330 F.3d 548 (3d Cir. 2003)................................................................................................15
Official Comm. of Unsecured Creditors of Enron Corp. v. Whalen (In re Enron Corp.), 357 B.R. 32 (Bankr. S.D.N.Y. 2006) ..............................................................15
Official Comm. of Unsecured Creditors of Grand Eagle Cos., Inc. v. ASEA Brown Boveri, Inc., 313 B.R. 219 (Bankr. N.D. Ohio 2004) ..................................................15
Official Comm. of Unsecured Creditors of Joyanna Holitogs, Inc. v. I. Hyman Corp. (In re Joyanna Holitogs, Inc.), 21 B.R. 323 (Bankr. S.D.N.Y. 1982)...............14
Official Comm. of Unsecured Creditors of Nat'l Forge Co. v. Clark (In re Nat'l Forge Co.), 326 B.R. 532 (Bankr. W.D. Pa. 2005) .....................................................21
iii
Official Comm. of Unsecured Creditors of Norstan Apparel Shops, Inc. v. Lattman (In re Norstan Apparel Shops, Inc.), 367 B.R. 68 (Bankr. E.D.N.Y. 2007) ............................................................................................................................15
Official, Unsecured Creditors' Comm. v. Stern (In re SPM Mfg. Corp.), 984 F.2d 1305 (1st Cir. 1993) .....................................................................................................21
Official Comm. of Unsecured Creditors v. Cablevision Sys. Corp. (In re Valley Media, Inc.), No. 01-11353, 2003 WL 21956410 (Bankr. D. Del. Aug. 14, 2003) ............................................................................................................................15
Pan Am Corp. v. Delta Air Lines, Inc., 175 B.R. 438 (Bankr. S.D.N.Y. 1994) ................21
Porter v. Yukon Nat'l Bank, 866 F.2d 355 (10th Cir. 1989) ........................................19, 20
In re Refco Inc., 505 F.3d 109 (2d Cir. 2007)....................................................................15
Rubin Bros. Footwear, Inc. v. Chemical Bank (In re Rubin Bros. Footwear, Inc.),73 B.R. 346 (Bankr. S.D.N.Y. 1987)...........................................................................17
Unsecured Creditors Comm. of Debtor STN Enters., Inc. v. Noyes (In re STN Enters.), 779 F.2d 901 (2d Cir. 1985)....................................................................14, 16
In re Valley Park, Inc., 217 B.R. 864 (Bankr. D. Mont. 1998) .........................................17
STATUTES AND RULES
11 U.S.C. § 105(a) ...........................................................................................................1, 4
11 U.S.C. § 547..............................................................................................................1, 17
11 U.S.C. § 547(b) .......................................................................................................17, 18
11 U.S.C. § 547(f)........................................................................................................18, 19
11 U.S.C. § 1103(c) .......................................................................................................4, 14
11 U.S.C. § 1103(c)(5)...................................................................................................1, 14
11 U.S.C. § 1109(b) ...................................................................................................1, 4, 14
28 U.S.C. § 157....................................................................................................................3
28 U.S.C. § 157(b) ...............................................................................................................4
28 U.S.C. § 1334..................................................................................................................3
iv
28 U.S.C. § 1408..................................................................................................................3
28 U.S.C. § 1409..................................................................................................................3
OTHER AUTHORITIES
H.R. Rep. No. 95-595, 95th Cong., 1st Sess. (1977), as reprinted in 1978 U.S.C.C.A.N. 5787 ................................................................................................13, 14
MISCELLANEOUS
7 COLLIER ON BANKRUPTCY ¶ 1109.04[1][a][ii] (15th ed. Rev. 2008) .............................22
The Official Committee of Unsecured Creditors (the “Committee”) of Chemtura
Corporation, et al. (collectively, the “Debtors”), by and through its undersigned counsel,
hereby files this motion (the “Motion”) for entry of an order, pursuant to sections 105(a),
1103(c) and 1109(b) of title 11 of the United States Code (the “Bankruptcy Code”),
authorizing the Committee to pursue and, if appropriate, settle certain causes of action
against Citibank, N.A., as administrative agent under the Debtors’ prepetition credit
facility (the “Prepetition Agent”), on behalf of the Debtors’ estates. In support of this
Motion, the Committee respectfully submits as follows:
PRELIMINARY STATEMENT
1. By this Motion, the Committee seeks authority to pursue certain causes of
action to avoid transfers made by the Debtors to the Prepetition Agent during the ninety
days prior to the commencement of the Debtors’ chapter 11 cases (the “Preference
Claims”).1 Specifically, the Committee seeks to avoid the following transfers as
preferences under Bankruptcy Code section 547: (i) liens and security interests granted
by the Debtors to the Prepetition Agent in all of the Debtors’ inventory (the “Inventory
Liens”); (ii) the lien allegedly granted by Chemtura Corporation (“Chemtura”) to the
Prepetition Agent in Chemtura’s ownership interests in non-Debtor Chemtura
Receivables LLC (the “SPV Equity Lien” 2 and, together with
1 If the Committee is granted derivative standing, the Committee intends to file a complaint (the “Complaint”)substantially in the form attached as Exhibit A to the Declaration of Philip C. Dublin in Support of the Motion of the Official Committee of Unsecured Creditors of Chemtura Corporation, et al., Pursuant to 11 U.S.C. §§ 105(a), 1103(c) and 1109(b), for Entry of an Order Granting Leave, Standing and Authority to Prosecute and, if Appropriate, Settle Causes of Action on Behalf of the Debtors’ Estates (the “Dublin Declaration”).
2 As of the date hereof, the Committee has been unable to confirm that the SPV Equity Lien was actually granted and perfected. Indeed, despite repeated requests, the Debtors have failed to produce any documents evidencing the existence of such lien. As a result of the deadline for the Committee to pursue Lender Claims (as defined in the Final DIP Order [D.E. #281]), however, the Committee seeks to avoid the SPV Equity Lien to the extent that it exists. Accordingly, all references to the SPV Equity Lien in this Motion and the annexed Complaint should not be deemed an admission regarding the existence of such lien.
2
the Inventory Liens, the “Preferential Liens”); and (iii) at least $6 million in cash payments
made by the Debtors to the Prepetition Agent (the “Cash Payments” and, collectively with the
Preferential Liens, the “Preferential Transfers”).
2. Avoidance of the Preferential Transfers will benefit the Debtors’ estates and their
unsecured creditors by, among other things, (i) stripping the purported liens on the Debtors’
inventory and the capital stock of Chemtura Receivables LLC, (ii) unwinding the $86.5 million
of rolled-up prepetition debt pursuant to the Final DIP Order (as defined below) and (iii)
recovering at least $6 million in cash.
3. At the onset of these cases, the Debtors waived any ability to investigate, assert
and/or prosecute any claims in respect of the Prepetition Credit Facility (as defined below). See
Final DIP Order [D.E. #281] at ¶ 28. Therefore, the Debtors are unable to pursue the
Preference Claims. The Debtors have consented, however, to the Committee’s standing to
pursue the Preference Claims on behalf of the Debtors’ estates.3
4. As discussed more fully below, all of the legal requirements for granting the
Committee derivative standing to pursue the Preference Claims, on behalf of the Debtors’
estates, have been satisfied. Prosecution of the Preference Claims is critical in these cases
because the benefits therefrom will include, among other things, (a) avoidance of liens granted
to the Prepetition Agent during the ninety days prior to March 18, 2009 (the “Petition Date”),
(b) the unwinding of all or a portion of the Roll-Up (as defined below), (c) disgorgement of
significant amounts of money to the Debtors’ estates, (d) greater flexibility in formulating a
chapter 11 plan of reorganization, (e) creation of an additional substantial recovery source for
3 The Debtors’ conditioned their consent to the Committee’s standing to pursue the Preference Claims on the Debtors’ retention of the right to propose settlements thereof. The Committee does not object to the Debtors retaining this right.
3
unsecured creditors and (f) pari passu treatment of the claims of certain unsecured creditors
with the claims of the Debtors’ prepetition lenders. Given the Debtors’ inability to prosecute
the Preference Claims, the Committee is the only party-in-interest qualified and sufficiently
vested to pursue such claims on behalf of the Debtors’ estates. Accordingly, the Committee
seeks (i) authority to prosecute the claims referenced herein against the Prepetition Agent, on
behalf of the Debtors’ estates, and (ii) authority to propose settlements in connection therewith.
5. The Committee also intends to include claims for declaratory relief in its
Complaint. Specifically, and as set forth in greater detail in the Complaint, the Committee
intends to pursue declarations that, among other things, (a) the Prepetition Credit Facility
constitutes a single undersecured credit facility and not, as the Prepetition Agent contends, two
separate credit facilities – one that is fully secured by stock of Chemtura’s first tier domestic
and foreign subsidiaries (and potentially all or a portion of the Preferential Liens, to the extent
not avoided) and another that is completely unsecured; (b) the amount of the Prepetition Credit
Facility Debt (as defined below) that is entitled to the benefit of collateral is capped at $46.1
million, not $139.2 million as asserted by the Debtors in the DIP Motion (as defined below);
and (c) the collateral securing the Prepetition Credit Facility Debt must be allocated among the
letters of credit and revolver borrowings outstanding as of the date the Secured Obligation Cap
(as defined below) is measured (collectively, the “Declaratory Relief Claims”). The Committee
respectfully submits that leave of the Court is not required for the Committee to pursue the
Declaratory Relief Claims.
JURISDICTION AND VENUE
6. This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157
and 1334. Venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409. This is a
4
core proceeding pursuant to 28 U.S.C. § 157(b). The statutory predicates for the relief
requested herein are Bankruptcy Code sections 105(a), 1103(c), and 1109(b).
BACKGROUND
A. The Debtors’ Prepetition Capital Structure
1. The Prepetition Credit Facility
7. The Debtors are party to the Amended and Restated Credit Agreement, dated as
of July 1, 2005 among Chemtura, as borrower, the Prepetition Agent and the lenders party
thereto (collectively, the “Prepetition Lenders”) (as further amended and restated, the
“Prepetition Credit Agreement”). See Declaration of Stephen Forsyth in Support of First Day
Pleadings (the “Forsyth Declaration”) at ¶ 32; Prepetition Credit Agreement at 1.4 Pursuant to
the Prepetition Credit Agreement, Chemtura obtained access to a revolving credit and letter of
credit facility (the “Prepetition Credit Facility”) which, initially, provided up to $600 million in
financing. See Prepetition Credit Agreement at 1. Certain of Chemtura’s wholly-owned
subsidiaries executed guarantees in connection with the Prepetition Credit Facility, making each
subsidiary jointly and severally liable for the full amount of debt outstanding under the
Prepetition Credit Facility (the “Subsidiary Guarantors” and, together with Chemtura, the
“Credit Agreement Obligors”).5 See Forsyth Declaration at ¶ 32. As of the Petition Date,
approximately $272 million was outstanding under the Prepetition Credit Facility (the
“Prepetition Credit Facility Debt”), consisting of $90 million in letters of credit and
approximately $182 million in revolver borrowings. See id. at ¶ 29.
4 The Prepetition Credit Agreement is attached as Exhibit B to the Dublin Declaration.
5 All of the Credit Agreement Obligors are Debtors in these chapter 11 cases.
5
8. Although the Prepetition Credit Facility was originally unsecured, in May 2007,
the downgrade of Chemtura’s long-term unsecured debt triggered a provision under the
Prepetition Credit Agreement entitling the Prepetition Agent to receive collateral to secure a
portion of the Prepetition Credit Facility Debt. See id. at ¶ 33. Specifically, pursuant to the
Prepetition Credit Agreement, if, at any time, Chemtura’s non-credit enhanced long-term senior
unsecured debt was rated at or lower than BB+ by Standard and Poor’s or Ba2 by Moody’s
Investors Services, the Prepetition Credit Facility Debt would be secured. See id.
9. Following the May 2007 downgrade, Chemtura and the Prepetition Agent entered
into the Pledge Agreement dated as of June 14, 2007, which was amended on July 31, 2007 (the
“Amended Pledge Agreement”), pursuant to which Chemtura granted the Prepetition Agent a
security interest in 100% of the capital stock of Chemtura’s first-tier domestic subsidiaries (the
“Domestic Stock Pledge”) and 66-2/3% of the capital stock of Chemtura’s first-tier foreign
subsidiaries (the “Foreign Stock Pledge” and, together with the Domestic Stock Pledge, the
“Equity Collateral”).6
10. As discussed in more detail below, the amount of Prepetition Credit Facility Debt
that could obtain the benefit of the Equity Collateral was limited because certain provisions in
the indentures governing the Debtors’ unsecured notes restricted the Debtors’ ability to incur or
maintain secured debt without triggering equal and ratable liens for the benefit of the holders of
the notes. In an attempt to prevent triggering the Debtors’ obligations to equally and ratably
secure the Notes, the security agreement for the Prepetition Credit Facility limits the amount of
Prepetition Credit Facility Debt that can be secured to no more than 10% of the Debtors’
6 The Pledge Agreement and the Amended Pledge Agreement are attached as Exhibits C and D respectively to the Dublin Declaration.
6
tangible consolidated net assets (the “Secured Obligation Cap”). See Forsyth Declaration at ¶
35; Amended Pledge Agreement at 5, 6; Second Amended Pledge Agreement (as defined
below) at 4; 2026 Indenture (as defined below) § 1010.
2. The Notes
11. As of the Petition Date, in addition to the Prepetition Credit Facility, the Debtors
had the following funded debt obligations: (i) $370 million in respect of certain 7% unsecured
notes due 2009 issued by Great Lakes Chemical Corporation and guaranteed by Chemtura (the
“2009 Notes”); (ii) $500 million in respect of certain 6.875% unsecured notes due 2016 issued
by Chemtura and guaranteed by all or substantially all of the other Debtors (the “2016 Notes”);
and (iii) $150 million in certain 6.875% debentures due 2026 issued by Chemtura (the “2026
Notes” and, together with the 2009 Notes and 2016 Notes, the “Notes”). See Forsyth
Declaration at ¶ 28.
B. The Debtors’ Financial Distress in 2008 and the Granting of the Inventory Lien
12. During 2008, due to, among other things, poor market conditions, upcoming debt
maturities and significant leverage, the Debtors’ financial performance began to deteriorate
drastically and they were faced with significant liquidity and covenant concerns. See id. at ¶¶
56-58. Indeed, during the fourth-quarter of 2008, Chemtura was unable to comply with the
leverage and interest coverage covenants under the Prepetition Credit Facility and was the
subject of a going concern qualification by its auditors. See Chemtura Form 10K, for period
ending December 31, 2008, at 38;7 Forsyth Declaration at ¶ 79.
13. On December 30, 2008 – well within the preference period – the Debtors granted
the Inventory Liens to the Prepetition Agent pursuant to the Second Amended and Restated
7 The Chemtura Form 10K, for period ending December 31, 2008 is attached as Exhibit E to the Dublin Declaration.
7
Pledge and Security Agreement (the “Second Amended Pledge Agreement”).8 See Forsyth
Declaration at ¶¶ 36, 39. In return, the Prepetition Agent agreed to waive Chemtura’s
compliance with certain financial covenants and events of default under the Prepetition Credit
Agreement for the period from December 30, 2008 through March 30, 2009, pursuant to the
Waiver and Second Amendment to the Amended and Restated Credit Agreement (the
“Waiver”).9 See id. at ¶ 36.
14. In addition to providing the Inventory Liens, the Waiver reduced the size of the
Prepetition Credit Facility to $500 million,10 limited outstanding revolver advances under the
Prepetition Credit Facility to $190 million from February 1, 2009 to March 30, 2009, and
limited outstanding letters of credit to $97 million. See id. at ¶ 37. The Waiver also restricted
the Debtors’ ability to take certain actions during the waiver period, including incurring certain
debt and granting liens, disposing of certain assets, making certain investments, paying cash
dividends and repurchasing equity. See id.
C. Secured Obligation Cap
15. As noted, the amount of Prepetition Credit Facility Debt that can be secured is
capped to avoid triggering provisions in the indentures requiring the grant of equal and ratable
liens in favor of the Notes. See id. at ¶ 48, 49.
16. Specifically, the Second Amended Pledge Agreement provides that the
Prepetition Credit Facility Debt will be secured, but only to the extent that the aggregate
8 The Second Amended Pledge Agreement is attached as Exhibit F to the Dublin Declaration.
9 The Waiver is attached as Exhibit G to the Dublin Declaration.
10 As discussed further below, the Prepetition Credit Facility was reduced further to $350 million in connection with certain Debtors’ entry into the New Receivables Facility (as defined below). See Chemtura Form 10K, for period ending December 31, 2008 at 36, 84.
8
amount of such secured debt does not exceed the amount “permitted to be incurred and secured
(at the time of incurrence) by the [Debtors] pursuant to Section 1010 of the 2026 Indenture
without the requirement to equally and ratably secure any of the notes issued pursuant to the
2026 Indenture.” See Second Amended Pledge Agreement at 4.
17. Section 1010 of the 2026 Indenture, in turn, provides that “the Company and its
Subsidiaries may … secure obligations or Indebtedness…if after giving effect to any such
security arrangements … the sum of … the aggregate amount of all such obligations and
Indebtedness then outstanding … does not at any such time exceed 10% of Consolidated Net
Tangible Assets.”11 The Debtors have asserted that the Secured Obligation Cap applicable to
the Prepetition Credit Facility Debt is $139.2 million.12 See Forsyth Declaration at ¶51.
D. The Debtors’ Liquidity Crisis and the Establishment of the New Receivables Facility
18. The Waiver required that the amount of debt outstanding under the Prepetition
Credit Facility could be no more than $287 million by December 31, 2008. As of such date,
Chemtura already had borrowed a total of $272 million – $182 million in revolving debt and
$90 million in letters of credit. See Forsyth Declaration at ¶¶ 29, 37. Thus, Chemtura only had
approximately $15 million in potential available liquidity under the Prepetition Credit Facility
through March 30, 2009.
11 “Consolidated Net Tangible Assets” is defined in the 2026 Indenture to mean “total consolidated assets of [the Debtors], less the following: (1) current liabilities of the [Debtors]; (2) all depreciation and valuation reserves and all other reserves (except (a) reserves for contingencies which have not been allocated to any particular purpose, and (b) deferred credits, including deferred federal and foreign income taxes and deferred investment tax credits) of the [Debtors]; (3) the net book amount of all intangible assets of the [Debtors], including, but without limitation, the unamortized portions of such items as good will, trademarks, trade names, patents and debt discount and expense less debt premium; and (4) appropriate adjustments on account of minority interests of other Persons holding stock in Subsidiaries.” A copy of the 2026 Indenture is attached as Exhibit H to the Dublin Declaration.
12 As set forth in the Complaint, the Committee seeks a declaration that the Secured Obligation Cap should be, at most, $46.1 million.
9
19. Another consequence of the Debtors’ deteriorating financial condition was the
Debtors’ inability to utilize fully an existing receivables securitization facility (the “Old
Receivables Facility”). See id. at ¶ 78. Consequently, as a condition of the Waiver and in order
to obtain access to additional liquidity, the Debtors obtained financing through a new
receivables facility (the “New Receivables Facility”). See id. at ¶ 52. The New Receivables
Facility was established pursuant to (i) the Receivables Sale Agreement, dated as of January 23,
2009 among Chemtura, Great Lakes, GLCC Laurel LLC, and Biolab, Inc., as sellers
(collectively, the “Receivables Facility Sellers”), and the Receivables SPV, as buyer (the
“Receivables Sale Agreement”) and (ii) the Receivables Purchase Agreement, dated as of
January 23, 2009, among the Receivables SPV, as seller, Chemtura, as the servicers, Citicorp
USA, Inc. as agent, Citigroup Global Markets Inc., as arranger, and certain purchasers13 (the
“Receivables Purchase Agreement”).14 See id.
20. Pursuant to the New Receivables Facility, the Receivables Facility Sellers sold
receivables to the Receivables SPV, which in turn, sold fractional ownership interests in the
receivables to participating purchasers who were also granted a security interest in all of the
receivables owned by the Receivables SPV. See id. at 53. The maximum amount of
availability under the New Receivables Facility was $150 million. See Receivables Purchase
Agreement at 25. Upon the establishment of the New Receivables Facility, the Prepetition
13 In addition to Citicorp USA, Inc., as agent, the following banks were purchasers under the New Receivables Facility: Citicorp USA, Inc., Bank of America, Wachovia, Credit Suisse (Cayman Islands Branch), Royal Bank of Scotland, Sumitomo Mitsui Banking Corp., ING Capital LLC, Calyon (New York Branch), The Bank of Tokyo – Mitsubishi UFJ Ltd., and The Northern Trust Company (collectively, the “Receivables Facility Lenders”). All of the Receivables Facility Lenders were also Prepetition Lenders under the Prepetition Credit Facility.
14 The Receivables Purchase Agreement is attached as Exhibit I to the Dublin Declaration. The Receivables Sale Agreement is attached as Exhibit J to the Dublin Declaration. The Receivables SPV was incorporated on December 18, 2008, and prior to its wind-down was a special purpose, bankruptcy remote affiliate of the Debtors.
10
Credit Facility was further reduced from $500 million to $350 million – a dollar for dollar
reduction. See Chemtura Form 10K, for period ending December 31, 2008 at 36, 84.
21. The Receivables Facility Sellers obtained funds through the New Receivables
Facility by selling their receivables to the Receivables SPV at a discount, which, upon
information and belief, was set at least semiannually based on prevailing costs of funds, recent
performance history of the receivables being sold, and other costs of ownership. See
Receivables Sale Agreement at § 2.01(d). Upon information and belief, and pursuant to the
terms of the New Receivables Facility, the Receivables SPV purchased the receivables from the
Receivables Facility Sellers for cash but was permitted to part of the purchase price in the form
of a subordinated note (each, a “SPV Subordinated Note”) if the Receivables SPV lacked
adequate cash on had for the purchase (the “Deferred Payment Option”). See Receivables Sale
Agreement § 2.02(b).
22. As of March 6, 2009, the sale price for the undivided interest in the receivables
purchased by the Receivables Facility Lenders from the Receivables SPV was just over $117
million, but the face amount of the receivables sold by the Receivables Facility Sellers to the
Receivables SPV was approximately $232 million. See Forsyth Declaration at ¶ 54.
Accordingly, the Receivables Facility Lenders were paying approximately 50% of the face
value for their interests in the receivables. Indeed, the Debtors have represented that, prior to
being unwound pursuant to the terms of the Final DIP Order, “the repurchase price for the
receivables sold pursuant to the new receivables facility was $117,388,411.52, and the face
value of those receivables was approximately $232 million.” See id.
23. As noted above, pursuant to the terms of the Receivables Sale Agreement, the
Receivables SPV purchased receivables from the Prepetition Receivables Sellers at a discount,
11
and, upon information and belief, the Receivables SPV also collected more money for the
receivables than was required to repay the Receivables Facility Lenders. Moreover, upon
information and belief, the Receivables SPV exercised the Deferred Payment Option in
connection with its purchase of receivables from the Receivables Facility Sellers until the
Petition Date. None of the Receivables Facility Sellers, however, have SPV Subordinated
Notes listed as assets in their respective Schedules of Assets and Liabilities filed with this Court
on June 11, 2009. See Debtors’ Schedules of Assets and Liabilities (June 11, 2009) [D.E.# 536,
551, 561, 563].15 Thus, the Receivables SPV, as opposed to being a pass-through, special
purpose vehicle, appears to have accumulated equity value and operated in essence as a revenue
generating entity. The value accumulated at the Receivables SPV was ostensibly owned by
Chemtura, on account of Chemtura’s 100% ownership interest in the Receivables SPV. See
Forsyth Declaration at ¶ 53.
24. The Second Amended Pledge Agreement provided that Chemtura was to grant the
Prepetition Agent a security interest in Chemtura’s 100% ownership of the Receivables SPV.
See Second Amended Pledge Agreement at 6. The Prepetition Agent has asserted that the SPV
Equity Lien was granted as collateral to secure a portion of the Prepetition Credit Facility
Debt.16
E. The Cash Payments
25. During the ninety days prior to the Petition Date, the Debtors made payments to
the Prepetition Agent on account of Prepetition Credit Facility Debt (including principal
15 The failure of the Debtors to schedule SPV Subordinated Notes as assets of the applicable Debtors should not be deemed an admission or acknowledgment by the Committee that such notes do not exist.
16 As noted above, to date, the Committee has been unable to confirm that the SPV Equity Lien was actually granted and properly perfected.
12
paydowns) of at least $6 million. See Chemtura Corporation’s Statement of Financial Affairs
(3b) at 9 [D.E.# 535]. Upon information and belief, these Cash Payments were not scheduled
payments of principal or interest.
F. Chapter 11 Filings and Final DIP Order
26. On the Petition Date, the Debtors filed a motion (the “DIP Motion”) for authority
to obtain postpetition financing from the Prepetition Lenders (the “DIP Facility”). The DIP
Facility consists of (i) a $250 million term loan; (ii) a $63.5 million revolving credit facility;
and (iii) an $86.5 million revolving credit facility. On April 29, 2009, this Court entered a final
order authorizing the Debtors to enter into the DIP Facility (the “Final DIP Order”). Proceeds
of the DIP Facility have been used to, among other things, (i) unwind the New Receivables
Facility and (ii) conditionally repay $86.5 million of Prepetition Credit Facility Debt (the “Roll-
Up”).
27. The Final DIP Order established, among other things, June 24, 2009 (the
“Challenge Period”) as the deadline for any party in interest to file a complaint contesting the
validity of any lien granted in connection with the Prepetition Credit Facility. The Final DIP
Order further provided that the “Debtors are deemed to have irrevocably waived and
relinquished all Lender Claims as of the date of entry of this Order.” Final DIP Order at ¶
29(a). Thus, by the express terms of the Final DIP Order, the Debtors have waived their
collective rights to contest the validity of the claims and liens of the Prepetition Agent and the
Prepetition Lenders. The Prepetition Agent has agreed to extend the Challenge Period to July
29, 2009 (the “Extended Challenge Period”). See Stipulation and Agreed Order Among the
Committee and the Prepetition Agent to Extend the Deadline for the Committee to Challenge
Prepetition Obligations Under the Final DIP Order [DE# 629].
13
28. By letters dated June 10, 2009 and July 1, 2009, (the “Demand Letters”), the
Committee formally demanded that the Debtors consent to the Committee’s standing to
commence and prosecute claims and causes available to the Debtors’ chapter 11 estates against
the Prepetition Agent and/or Prepetition Lenders.17 By letters dated June 16, 2009 and July 7,
2009 (the “Consent Letters”), the Debtors indicated their consent to the Committee’s standing
to pursue such claims on behalf of the Debtors’ estates.18
RELIEF REQUESTED
29. The Committee hereby requests that this Court grant the Committee leave,
standing, and authority to prosecute Claims and, if appropriate, propose settlements in respect
of the foregoing, on behalf of the Debtors’ estates.
BASIS FOR RELIEF
A. Standard for Derivative Standing
30. As noted above, the Extended Challenge Period will expire on July 29, 2009.19
Accordingly, the Committee seeks the relief requested herein to pursue the Preference Claims
in a timely manner. Although the Bankruptcy Code does not expressly authorize a creditors’
committee to initiate an adversary proceeding to avoid liens, guarantee obligations, security
interests and/or pursue other causes of action typically brought by the trustee or the debtor in
possession, the Bankruptcy Code establishes a creditors’ committee for the express purpose of
protecting the rights of its constituents and similarly situated creditors. See H.R. Rep. No. 95-
595, 95th Cong., 1st Sess. (1977), as reprinted in 1978 U.S.C.C.A.N. 5787. In furtherance of
this purpose, Bankruptcy Code section 1103(c), which enumerates the statutory functions of a
17 Copies of the Demand Letters are attached as Exhibit K to the Dublin Declaration.
18 Copies of the Consent Letters are attached as Exhibit L to the Dublin Declaration.
14
creditors’ committee, authorizes creditors’ committees to “perform such other services as are in
the interest of those represented.” 11 U.S.C § 1103(c)(5).
31. To that end, Bankruptcy Code section 1109(b) provides, in pertinent part, that:
[A] party in interest, including the debtor, the trustee, [or] a creditors’ committee … may raise and may appear and be heard on any issue in a case under this chapter.
11 U.S.C. § 1109(b). This general right to be heard would be rendered meaningless with respect
to creditors’ committees unless such committees are also given the right to act, on behalf of the
estate, if a debtor in possession or trustee, who is explicitly granted the right to act, unjustifiably
fails to act. See Unsecured Creditors Comm. of Debtor STN Enters., Inc. v. Noyes (In re STN
Enters.), 779 F.2d 901, 904-05 (2d Cir. 1985) (recognizing an "implied, but qualified" right
under 11 U.S.C. §§ 1103(c)(5) and 1109(b) for an unsecured creditors' committee, with court
approval, to assert claims where the trustee or debtor-in-possession unjustifiably failed to bring
suit or abused its discretion in not suing on colorable claims likely to benefit the reorganization
estate.”); see also Official Comm. of Unsecured Creditors of Joyanna Holitogs, Inc. v. I. Hyman
Corp. (In re Joyanna Holitogs, Inc.), 21 B.R. 323, 326 (Bankr. S.D.N.Y. 1982) (holding that the
general right to be heard would be an empty grant unless coupled with the right to sue, in the
event that the trustee or debtor in possession so refuses); Adelphia Commc’ns Corp. v. Bank of
America, N.A. (In re Adelphia Commc’ns Corp.), 330 B.R. 364, 373 (Bankr. S.D.N.Y. 2005)
19 The Final DIP Order permits further extensions of the Extended Challenge Period with the consent of the Prepetition Agent or by order of the Court if the Debtors have failed to respond to the Committee’s requests for information. See Final DIP Order at ¶ 29(a). While the Committee believes it has sufficient information to assert colorable claims, the Committee has outstanding information requests to the Debtors. Accordingly, in the event the Motion is contested and the Court does not have sufficient availability to hear a contested matter on July 28, 2009, the Committee respectfully submits that grounds exist for the Court to further extend the Extended Challenge Period unilaterally.
15
(“The practice of authorizing the prosecution of actions on behalf of an estate by committees …
is one of long standing, and nearly universally recognized.”).
32. Creditor committees have routinely litigated causes of action on behalf of debtor
estates to avoid fraudulent or preferential transfers before courts in the Second Circuit. See e.g.,
In re Refco Inc., 505 F.3d 109 (2d Cir. 2007); Official Comm. of Unsecured Creditors of Enron
Corp. v. Whalen (In re Enron Corp.), 357 B.R. 32 (Bankr. S.D.N.Y. 2006); Official Comm. of
Unsecured Creditors of Norstan Apparel Shops, Inc. v. Lattman (In re Norstan Apparel Shops,
Inc.), 367 B.R. 68 (Bankr. E.D.N.Y. 2007).
33. The practice of conferring standing upon creditors’ committees to pursue actions
on behalf of a bankruptcy estate is widely followed and accepted in other jurisdictions as well.
See, e.g., Official Comm. of Unsecured Creditors of Cybergenics Corp. v. Chinery, 330 F.3d
548, 568 (3d Cir. 2003) (holding that “the ability to confer derivative standing upon creditors’
committees is a straightforward application of bankruptcy courts’ equitable powers”); La.
World Exposition, Inc. v. Fed. Ins. Co. (In re La. World Exposition, Inc.), 832 F.2d 1391, 1397
(5th Cir. 1987) (stating that “[a] number of bankruptcy courts have held that in some
circumstances, a creditors’ committee has standing under 11 U.S.C. § 1103(c)(5) and/or §
1109(b) to file suit on behalf of the debtor-in-possession … or the trustee.”). Moreover, courts
in other jurisdictions, like here, routinely hold that creditors’ committees can prosecute
preferential transfer actions. See Official Comm. of Unsecured Creditors of Grand Eagle Cos.,
Inc. v. ASEA Brown Boveri, Inc., 313 B.R. 219, 222 (Bankr. N.D. Ohio 2004) (unsecured
creditors’ committee had derivative standing to pursue its preference claims against prepetition
lenders to recover loan payments made during preference period); Official Comm. of Unsecured
Creditors v. Cablevision Sys. Corp. (In re Valley Media, Inc.), No. 01-11353, 2003 WL
16
21956410 at *1-3 (Bankr. D. Del. Aug. 14, 2003) (official committee of unsecured creditors
was proper party to bring preferential transfer claim).
34. A creditors’ committee’s right to bring an action on behalf of the estate is not,
however, unqualified. Courts in the Second Circuit have established that, subject to certain
exceptions, several requirements must be satisfied before a committee can pursue claims on
behalf of a debtor’s estate: (a) there must have been a colorable claim or claims for relief that
on appropriate proof would support a recovery; (b) the debtor must have unjustifiably refused to
bring suit upon a demand made to them to bring such action; and (c) the court must determine
whether an action asserting such claim(s) is likely to benefit the reorganization estate. See In re
STN Enterps., 779 F.2d at 905.
B. The Committee Clearly Satisfies the Test for Derivative Standing With Respect to the Preference Claims
1. The Preference Claims Are Colorable
35. The first element of the derivative standing test outlined above requires the
Committee to demonstrate that colorable claims exist against the Prepetition Agent. The case
law construing the requirement for “colorable” claims provides that the requisite showing is a
relatively low threshold to satisfy. See, e.g., In re Adelphia Commc’ns Corp., 330 B.R. at 376
(holding that the requisite standard for presenting a “colorable” claim is relatively easy to
meet); Official Comm. of Unsecured Creditors of America’s Hobby Ctr., Inc. v. Hudson United
Bank (In re America’s Hobby Ctr., Inc.), 223 B.R. 275, 288 (Bankr. S.D.N.Y. 1998) (observing
that only if the claim is “facially defective” should standing be denied); In re Colfor, Inc., No.
96-60306, 1998 WL 70718, *2 (Bankr. N.D. Ohio Jan. 5, 1998) (stating that consistent with the
common meaning of “colorable,” that the claims to be asserted need only be “plausible” or “not
without some merit”). Courts have held that, in determining whether a colorable claim exists,
17
the court must engage in an inquiry “much the same as that undertaken when a defendant
moves to dismiss a complaint for failure to state a claim.” In re iPCS, Inc., 297 B.R. 283, 291
(Bankr. N.D. Ga. 2003) (quoting In re America’s Hobby Ctr., Inc., 223 B.R. at 282); see also In
re Valley Park, Inc., 217 B.R. 864, 869 n.4 (Bankr. D. Mont. 1998) (holding that the committee
“does not have to satisfy the quantum of proof necessary for a judgment in order to show a
colorable claim”).
36. In determining whether a claim is colorable, the Court is not required to conduct a
mini-trial. Instead, the Court may “weigh the ‘probability of success and financial recovery,’ as
well as the anticipated costs of litigation, as part of a cost/benefit analysis” to determine
whether the prosecution of claims is likely to benefit the estate. In re iPCS, 297 B.R. at 291
(citations omitted). Thus, the Committee is only required to establish to the Court the existence
of a plausible claim. At the very most, the Committee need only come forward with minimal
evidence demonstrating that its contentions are not frivolous. See id. (“It is clear that, if the
claims lack any merit whatsoever, allowing another party to pursue the claims at the expense of
the bankruptcy estate would neither be in the best interests of the estate nor necessary and
beneficial to the efficient resolution of the bankruptcy proceedings.”).
37. Courts within the Second Circuit and other jurisdictions have held that security
interests or liens granted within the 90-day preference period can be avoided as preferential
transfers if the elements of section 547(b) are satisfied. See Rubin Bros. Footwear, Inc. v.
Chemical Bank (In re Rubin Bros. Footwear, Inc.), 73 B.R. 346, 355 (Bankr. S.D.N.Y. 1987)
(grant of security interest is a transfer within the definition of section 547); In re Aerco Metals,
60 B.R. 77, 79 (Bankr. N.D. Tex. 1985) (security interest in inventory, accounts, and contract
rights constituted a transfer for purposes of § 547(b)).
18
38. Pursuant to Bankruptcy Code section 547(b), a transfer of an interest in the
property of a debtor may be avoided if such transfer (i) was made to or for the benefit of a
creditor; (ii) was for or on account of an antecedent debt owed by the debtor before such
transfer was made; (iii) was made while the debtor was insolvent;20 (iv) was made on or within
90 days before the commencement of the bankruptcy case; and (v) enables the creditor to
receive more than such creditor would have received if (x) the case was a case under chapter 7
of the Bankruptcy Code, (y) the transfer had not been made, and (z) such creditor received
payment of such debt to the extent provided by the provisions of the Bankruptcy Code. See 11
U.S.C. § 547(b).
39. By applying the foregoing standards, the Committee has set forth colorable
Preference Claims. There is no factual dispute that the first four elements of section 547(b)
have been satisfied: the granting of the Preferential Liens and the payment of the Cash
Payments to the Prepetition Agent (i) were to or for the benefit of the Prepetition Lenders, (ii)
were on account of antecedent debts owed under the Prepetition Credit Facility prior to the
Petition Date, (iii) were made while the Debtors were insolvent, and (iv) were made on or
within 90 days of the Petition Date. With respect to the fifth and final element, the Committee
can clearly meet its burden of presenting a colorable claim that the Prepetition Agent received
more from the grant of the Preferential Liens as well as the Cash Payments than it would have
received in a hypothetical chapter 7 liquidation had these liens not been granted and Cash
Payments had not been made.
20 Bankruptcy Code section 547(f) provides that, for the 90 days immediately preceding the date of the filing of the petition, the debtor is presumed to have been insolvent. 11 U.S.C. § 547(f); Lawson v. Ford Motor Co. (In re Roblin Indus., Inc.), 78 F.3d 30, 34 (2d Cir. 1996).
19
40. While providing a lien to a fully secured creditor would not be a preferential
transfer because the creditor would receive payment up to the full value of the creditor’s
collateral in a chapter 7 liquidation (see Goldberg v. Such (In re Keplinger), 284 B.R. 344, 347
(Bankr. N.D.N.Y. 2002) citing Batlan v. TransAmerica Commercial Fin. Co. (In re Smith’s
Home Furnishings, Inc.), 265 F.3d 959, 964 (9th Cir. 2001)), transferring a lien to an unsecured
or undersecured creditor would enable such creditor to receive more than it would have had the
estate been liquidated and the disputed transfer not been made. See Porter v. Yukon Nat’l Bank,
866 F.2d 355, 359 (10th Cir. 1989) (“[T]he effect of the transfer was the change of the status of
the Bank from that of a partially unsecured creditor to that of a fully secured creditor. Since the
evidence indicates no unsecured creditor would receive full payment on liquidation, this change
in status is sufficient to establish the last element of a preferential transfer.”); Harris v. Penesi
(In re Harris), No. 01-10365, 2003 WL 25795591 at *4 (Bankr. N.D.N.Y. Mar. 11, 2003).
41. As the Debtors have acknowledged and the Secured Obligation Cap mandates, the
Prepetition Credit Facility Debt was not fully secured as of the Petition Date. Moreover, upon
information and belief, as of the Petition Date, to the extent the Debtors would have filed for
chapter 7, the value of the Equity Collateral – the only collateral securing the Prepetition Credit
Facility Debt other than the voidable Preferential Liens – would have been less than the amount
of the Secured Obligation Cap (whether the Secured Obligation Cap was $46.1 million or
$139.2 million). Indeed, pursuant to Bankruptcy Code section 547(f), the Debtors were
presumptively insolvent as of the applicable transfer dates. Thus, the Domestic Stock Pledge,
pursuant to which the Prepetition Agent was granted a security interest in the stock of
Chemtura’s first tier domestic subsidiaries, should be presumed to be worthless.
20
42. Similarly, the Foreign Stock Pledge would, in a hypothetical liquidation of the
Debtors, have little value as most, if not all, of Chemtura’s foreign, non-debtor subsidiaries
would have been rendered insolvent upon the commencement of chapter 7 cases by the Debtors
by virtue of, among other things, (i) the loss of synergies with the Debtors, (ii) the negligible
value that would be ascribed to the inter-company claims of the foreign non-Debtors against the
Debtors (which claims, upon information and belief, constitute a significant portion of the
foreign subsidiaries assets), (iii) the maturation of significant pension liabilities, and (iv) the
loss of funding and capital contributions from the Debtors.
43. The Inventory Liens and SPV Equity Lien therefore provided the Prepetition
Agent, on behalf of the Prepetition Lenders, with more than they would have received had the
Debtors filed for chapter 7 on the Petition Date and such liens not been granted. See Porter,
866 F.2d at 359. The same holds true for the Cash Payments.
44. Accordingly, the Committee has established that the Preference Claims are
colorable.
2. Demand and the Debtors’ Consent to Assert the Preference Claims.
45. The second element of the derivative standing test requires that (a) the Committee
make a demand on the Debtors to assert the Preference Claims, and (b) the Debtors
unjustifiably refuse the Committee’s demand.
46. As set forth in the Demand Letters, the Committee made formal demands on June
10, 2009 and July 1, 2009 that the Debtors consent to the Committee’s prosecution of the
Preference Claims and the Declaratory Relief Claims. As noted above, pursuant to the Consent
21
Letters, the Debtors have consented to the Committee’s standing and do not object to the
Committee’s prosecution of these claims on behalf of the Debtors’ estates.21
3. The Committee is Seeking Prior Court Approval to Prosecute the Preference Claims.
47. Finally, the requirement that the Committee should obtain court approval prior to
asserting claims on behalf of the estate is satisfied by the relief sought herein.
C. Additional Considerations
48. Granting the Committee standing to prosecute the Preference Claims is also
salient to the Committee’s proper discharge of its fiduciary duty to “maximize their recovery of
the [e]state’s assets.” Motorola, Inc. v. Official Comm. of Unsecured Creditors and JP Morgan
Chase Bank, N.A. (In re Iridium Operating LLC), 478 F.3d 452, 466 (2d Cir. 2007); see also
Pan Am Corp. v. Delta Air Lines, Inc., 175 B.R. 438, 514 (Bankr. S.D.N.Y. 1994) (an official
creditors’ committee has the responsibility to aid, assist, and monitor the debtor to ensure that
the unsecured creditors' views are heard and their interests promoted and protected). Courts
have found that committees should be given some latitude in executing these duties, allowing a
committee to “pursu[e] whatever lawful course best serves the interests of the class of creditors
represented.” Official Unsecured Creditors’ Comm. v. Stern (In re SPM Mfg. Corp.), 984 F.2d
1305, 1315 (1st Cir. 1993).
21 The Committee did not formally demand that the Debtors themselves prosecute the Preference Claims because the Committee believes that such a demand would be futile given the Debtors’ waivers and stipulations in the Final DIP Order. See Final DIP Order at ¶ 29(a). Case law makes clear that a committee is not required to demand formally that a debtor take action where it is “plain from the record that no action on the part of the debtor would have been forthcoming.” See, e.g., Official Comm. of Unsecured Creditors of Nat’l Forge Co. v. Clark (In re Nat’l Forge Co.),326 B.R. 532, 544 (Bankr. W.D. Pa. 2005) (affirming the bankruptcy court’s excusal of the committee’s failure to petition the debtor when it waived all rights to contest the lenders’ claims in connection with final DIP order making such request futile).
22
49. In order to discharge its fiduciary duties properly, and due to the Debtors’
inability to pursue the Preference Claims, the Committee is now seeking standing to prosecute
such claims on behalf of the Debtors’ estates. As one influential treatise notes, there is no
difference for standing purposes between a committee participating in a proceeding versus a
committee initiating a proceeding if such proceeding is essential to the exercise of the
committee’s fiduciary duties:
[V]irtually every bankruptcy proceeding necessarily arises within the context of a bankruptcy case, and, conversely, it is only through discrete proceedings that the case is administered and that issues may be raised and determined by the court … . Because every issue in a case may be raised and adjudicated only in the context of a proceeding of some kind, it is apparent that reference in section 1109(b) to ‘any issue in a case’ subsumes issues in a proceeding. Any other conclusion would render section 1109(b) meaningless because there is no such thing as an issue that arises exclusively in a ‘case’ and not in a proceeding.
7 COLLIER ON BANKRUPTCY ¶ 1109.04[1][a][ii] at 1109-25, 1109-26 (15th ed. rev. 2008).
50. The Committee is the appropriate party to prosecute the Preference Claims
because its very purpose is to defend the interest of the estates and to ensure that the assets of
the estates are maximized. See, In re Iridium Operating LLC, 478 F.3d at 466. The unsecured
creditors whom the Committee represents have a significant stake in the outcome of the
litigation and, thus, the Committee is more likely to pursue the litigation vigorously than any
other party.
51. The Committee believes that avoiding the Preferential Liens will, among other
things, (i) result in the unwinding of the Roll-Up, (ii) result in the disgorgement of fees and
expenses paid as adequate protection to a portion of the Prepetition Credit Facility Debt and
(iii) free up a substantial pool of assets that may be used to satisfy the estates’ liabilities to
unsecured creditors. Moreover, the Committee does not expect that the costs and expenses to
be incurred in connection with prosecuting the Preference Claims will be excessive in relation
23
to the potential recovery for the estates. Although litigation costs are a factor to consider, the
Committee must only provide the Court with the comfort that prosecution of the Preference
Claims represents a sensible expenditure of the estates’ resources. See In re Adelphia
Commc’ns Corp., 330 B.R. at 386. Here, where the potential benefits to the Debtors’ estates
and their unsecured creditors exceed tens of millions of dollars, if not more, the benefits of
prosecuting the Preference Claims clearly outweigh any costs incurred in connection therewith.
RESERVATION OF RIGHTS
52. The Committee reserves its right to seek authority to commence and prosecute
other claims and/or causes of action in respect of the Prepetition Credit Facility on behalf of the
Debtors’ estates.
NOTICE
53. This Motion has been served on (i) the Office of the United States Trustee for the
Southern District of New York; (ii) the Debtors and their counsel; (iii) counsel to the
Prepetition Agent; and (iv) all entities that have filed a request for service of filings pursuant to
Bankruptcy Rule 2002.
NO PRIOR REQUEST
54. No prior application for the relief sought in this Motion has been made to this or
any other court in connection with these chapter 11 cases.
24
WHEREFORE, the Committee requests that the Court enter an order, substantially in
the form annexed hereto as Exhibit M (i) granting the Committee leave, standing and authority to
commence and prosecute the Preference Claims, on behalf of the Debtors’ estates, (ii) providing
the Committee with authority to propose settlements of the Preference Claims, and (iii) granting
the Committee such other and further relief as the Court may deem just, proper and equitable.
Dated: New York, New York July 16, 2009
AKIN GUMP STRAUSS HAUER & FELD LLP
By: /s/ Daniel H. GoldenDaniel H. GoldenPhilip C. DublinMeredith A. Lahaie Akin Gump Strauss Hauer & Feld LLP One Bryant Park New York, New York 10036 (212) 872-1000 (Telephone) (212) 872-1002 (Facsimile) dgolden@akingump.com pdublin@akingump.com mlahaie@akingump.com
Counsel for the Official Committee of Unsecured Creditors
AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park New York, New York 10036 (212) 872-1000 (Telephone) (212) 872-1002 (Facsimile) Daniel H. GoldenPhilip C. DublinMeredith A. Lahaie
Counsel for the Official Committee of Unsecured Creditors
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------x : In re: : Chapter 11 : Chemtura Corporation, et al. : Case No. 09-11233 (REG) : Debtors. : (Jointly Administered) ---------------------------------------------------------------x
DECLARATION OF PHILIP C. DUBLIN IN SUPPORT OF MOTION OF THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS OF CHEMTURA CORPORATION, ET AL.,PURSUANT TO 11 U.S.C. §§ 105(a), 1103(c) AND 1109(b),
FOR ENTRY OF AN ORDER GRANTING LEAVE, STANDING AND AUTHORITY TO PROSECUTE AND, IF APPROPRIATE,
SETTLE CAUSES OF ACTION ON BEHALF OF THE DEBTORS’ ESTATES
I, Philip C. Dublin, hereby declare, pursuant to 28 U.S.C. § 1746, under penalty of
perjury:
1. I am a member of the firm Akin Gump Strauss Hauer & Feld LLP (“Akin
Gump”). Akin Gump is counsel to the Committee of Unsecured Creditors (the “Committee”) of
Chemtura Corporation, et al. (collectively, the “Debtors”). I submit this declaration in support of
the Committee’s motion (“Motion”) for entry of an order, pursuant to sections 105(a), 1103(c)
and 1109(b) of title 11 of the United States Code, authorizing the Committee to pursue and, if
appropriate, settle certain causes of action against Citibank, N.A. (the “Prepetition Agent”), as
2
administrative agent under the Debtors’ prepetition credit facility, on behalf of the Debtors’
estates. In support of the Motion,1 I respectfully state as follows:
2. In a discussion with the Committee’s counsel, counsel for the Prepetition Agent
asserted that the SPV Equity Lien was granted to the Prepetition Agent.
3. Annexed hereto as Exhibit A is a true and correct copy of the draft Complaint
asserting claims against the Prepetition Agent in connection with the Motion.
4. Annexed hereto as Exhibit B is a true and correct copy of the Credit Agreement,
dated as of July 1, 2005 between the Debtors, the Prepetition Agent, and the Prepetition Lenders.
5. Annexed hereto as Exhibit C is a true and correct copy of the Pledge Agreement,
dated as of June 14, 2007 between the Debtors and the Prepetition Agent.
6. Annexed hereto as Exhibit D is a true and correct copy of the Amended and
Restated Pledge Agreement, dated as of July 31, 2007 between the Debtors and the Prepetition
Agent.
7. Annexed hereto as Exhibit E is a true and correct copy of Chemtura’s Form 10K,
for period ending December 31, 2008.
8. Annexed hereto as Exhibit F is a true and correct copy of the Second Amended
and Restated Pledge and Security Agreement, dated as of December 30, 2008 between the
Debtors and the Prepetition Agent.
9. Annexed hereto as Exhibit G is a true and correct copy of the Waiver and Second
Amendment to the Amended and Restated Credit Agreement, dated as of December 30, 2008
between the Debtors and the Prepetition Agent.
1 Capitalized terms not defined herein shall have the meaning ascribed to them in the Motion.
3
10. Annexed hereto as Exhibit H is a true and correct copy of the indenture for the
2026 Notes, dated as of February 1, 1993 between WITCO Corporation and The Chase
Manhattan Bank, N.A. Trustee.
11. Annexed hereto as Exhibit I is a true and correct copy of the Receivables
Purchase Agreement, dated as of January 23, 2009 among the Receivables SPV, Chemtura, and
Citicorp USA, Inc.
12. Annexed hereto as Exhibit J is a true and correct copy of the Receivables Sale
Agreement, dated January 23, 2009 among Chemtura, Great Lakes Chemical Corporation,
GLCC Laurel, LLC, Biolab, Inc., as sellers, Chemtura Receivables LLC, as buyer, and
Chemtura, as buyer’s servicer.
13. Annexed hereto as Exhibit K are true and correct copies of the demand letters sent
by the Committee to the Debtors seeking consent to prosecute the claims described in the
Motion, dated June 10, 2009 and July 1, 2009.
14. Annexed hereto as Exhibit L are true and correct copies of the letters from the
Debtors consenting to the Committee’s prosecution of the claims described in the Motion, dated
June 16, 2009 and July 7, 2009.
15. Annexed hereto as Exhibit M is a true and correct copy of the proposed order
granting the Committee the relief sought in the Motion.
4
Dated: New York, New York July 16, 2009 AKIN GUMP STRAUSS HAUER & FELD LLP
By: /s/ Philip C. DublinPhilip C. DublinAkin Gump Strauss Hauer & Feld LLP One Bryant Park New York, New York 10036 (212) 872-1000 (Telephone) (212) 872-1002 (Facsimile) pdublin@akingump.com
Counsel for the Official Committee of Unsecured Creditors
EXHIBIT A
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AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park New York, New York 10036 (212) 872-1000 (Telephone) (212) 872-1002 (Facsimile) Daniel H. Golden Philip C. Dublin
Counsel for the Official Committee of Unsecured Creditors
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------x : In re: : Chapter 11 : Chemtura Corporation, et al., : Case No. 09-11233 (REG) : Debtors. : Jointly Administered ---------------------------------------------------------------xOfficial Committee of Unsecured Creditors : of Chemtura Corporation, et al., : Plaintiff, : : -vs.- : Adversary No. ____________ : Citibank, N.A., : : Defendant. : ---------------------------------------------------------------x
ADVERSARY COMPLAINT
Plaintiff, the Official Committee of Unsecured Creditors (the “Committee”) of Chemtura
Corporation (“Chemtura”) and its affiliated debtors and debtors in possession (collectively, the
“Debtors”), by and through its undersigned counsel, on behalf of and as the representative of the
bankruptcy estates of the Debtors, as and for its adversary complaint (the “Complaint”) pursuant
to Rule 7001 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) alleges as
follows:
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NATURE OF THE ACTION
1. By its Complaint, the Committee seeks to avoid various preferential transfers (the
“Preference Claims”) and seeks declarations from the Court regarding the nature and extent of
the collateral securing the Prepetition Credit Facility (as defined below) (the “Declaratory Relief
Claims” and, together with the Preference Claims, the “Claims”).
2. In particular, the Committee seeks to avoid the following transfers under
Bankruptcy Code section 547:
(i) Inventory liens. The liens and security interests granted by the Debtors to the Prepetition Agent (as defined below) on or around December 30, 2008 in all of the Debtors’ inventory (the “Inventory Liens”);
(ii) Receivables SPV equity lien. The lien allegedly granted by Chemtura Corporation (“Chemtura”) to the Prepetition Agent during the ninety days prior to the Petition Date (as defined below) in Chemtura’s ownership interests in non-Debtor Chemtura Receivables LLC (the “SPV Equity Lien” and, together with the Inventory Liens, the “Preferential Liens”);1
and
(iii) Cash transfers. At least $6 million in cash payments made by the Debtors to the Prepetition Agent during the preference period (the “Cash Payments” and, collectively with the Preferential Liens, the “Preferential Transfers”).
3. Avoidance of the Preferential Transfers will benefit the Debtors’ estates and their
unsecured creditors by, among other things: (i) stripping the purported liens on (a) the Debtors’
inventory and (b) the capital stock of Chemtura Receivables LLC; (ii) unwinding the $86.5
million of rolled-up prepetition debt pursuant to the Final DIP Order (as defined below); and (iii)
recovering at least $6 million in cash.
1 Counsel for the Prepetition Agent has alleged the existence of the SPV Equity Lien, but the Committee has not yet been provided with any documentary or other evidence that the SPV Equity Lien was granted and perfected. Accordingly, the Committee seeks to avoid the SPV Equity Lien to the extent it exists, and all references to the SPV Equity Lien herein should not be deemed in any way as a concession regarding the existence of such lien.
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4. In addition, pursuant to Bankruptcy Rule 7001(9) and 28 U.S.C. §§ 2201 and
2202, the Committee asks the Court to declare that (i) the Prepetition Credit Facility constitutes a
single undersecured credit facility and not, as the Prepetition Agent contends, two separate credit
facilities – one that is fully secured by stock of Chemtura’s first tier domestic and foreign
subsidiaries (and potentially all or a portion of the Preferential Liens, to the extent not avoided)
and another that is completely unsecured; (ii) the amount of the Prepetition Credit Facility Debt
(as defined below) that is entitled to the benefit of collateral is capped at $46.1 million; and (iii)
the collateral securing the Prepetition Credit Facility must be allocated among the letters of credit
and revolver borrowings outstanding as of the date the Secured Obligation Cap (as defined
below) is measured and cannot be reallocated to subsequent borrowings.
5. The requested declarations will benefit the estates by, among other things,
providing alternative or additional bases of recovery by requiring: (i) the disgorgement of
putative “adequate protection” payments made to the Prepetition Agent; (ii) the unwinding of the
roll-up of Prepetition Credit Facility Debt and the disgorgement of interest, fees and expenses
associated therewith; and (iii) the freeing of tens of millions of dollars of value for distribution to
unsecured creditors.
JURISDICTION AND VENUE
6. This Court has jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334. This
Adversary Proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (F), and (O).
7. Venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409.
8. The statutory predicates for the relief requested herein are sections 105(a), 502,
506, 507, 547, and 550 of title 11 of the United States Code (the “Bankruptcy Code”),
Bankruptcy Rule 7001 and 28 U.S.C. §§ 2201 and 2202.
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THE PARTIES
9. Collectively, the Debtors and their non-Debtor affiliates, constitute one of the
largest publicly-traded specialty chemical enterprises in the United States, dedicated to
manufacturing and marketing specialty chemicals, crop protection products and pool, spa and
home care products. On March 18, 2009 (the “Petition Date”), each of the Debtors filed a
voluntary petition for relief under chapter 11 of the Bankruptcy Code.
10. Plaintiff Committee was appointed by the Office of the United States Trustee for
the Southern District of New York pursuant to Bankruptcy Code section 1102 on March 26,
2009. The Committee brings the Preference Claims on behalf of and for the benefit of the
Debtors’ estates, and the Declaratory Relief Claims for the declarations sought herein.
11. Defendant Citibank, N.A. (“Citibank”) is the administrative agent (the
“Prepetition Agent”) under the Prepetition Credit Facility, the holder of the Inventory Liens and
the SPV Equity Lien, and the recipient of the Cash Payments. Citibank is an initial transferee of
the Preferential Transfers within the meaning of Bankruptcy Code section 550(a).
FACTUAL ALLEGATIONS
A. The Debtors’ Prepetition Capital Structure
1. The Prepetition Credit Facility
12. The Debtors are party to the Amended and Restated Credit Agreement, dated as of
July 1, 2005 among Chemtura, as borrower, the Prepetition Agent and the lenders party thereto
(collectively, the “Prepetition Lenders”) (as further amended and restated, the “Prepetition Credit
Agreement”).
13. Pursuant to the Prepetition Credit Agreement, Chemtura obtained access to a
revolving credit and letter of credit facility (the “Prepetition Credit Facility”) which, initially,
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provided up to $600 million in financing. Certain of Chemtura’s wholly-owned subsidiaries
executed guarantees in connection with the Prepetition Credit Facility, making each subsidiary
jointly and severally liable for the full amount of debt outstanding under the Prepetition Credit
Facility (the “Subsidiary Guarantors” and, together with Chemtura, the “Credit Agreement
Obligors”).2 As of the Petition Date, approximately $272 million was outstanding under the
Prepetition Credit Facility (the “Prepetition Credit Facility Debt”), consisting of $90 million in
letters of credit and approximately $182 million in revolver borrowings.
14. Although the Prepetition Credit Facility was originally unsecured, in May 2007,
the downgrade of Chemtura’s long-term unsecured debt triggered a provision under the
Prepetition Credit Agreement entitling the Prepetition Agent to receive collateral to secure a
portion of the Prepetition Credit Facility Debt. Specifically, pursuant to the Prepetition Credit
Agreement, if, at any time, Chemtura’s non-credit enhanced long-term senior unsecured debt was
rated at or lower than BB+ by Standard and Poor’s or Ba2 by Moody’s Investors Services, the
Prepetition Credit Facility Debt would be secured.
15. Following the May 2007 downgrade, Chemtura and the Prepetition Agent entered
into the Pledge Agreement dated as of June 14, 2007 pursuant to which Chemtura granted the
Prepetition Agent a security interest in 100% of the capital stock of Chemtura’s first-tier
domestic subsidiaries (the “Domestic Stock Pledge”) and 66-2/3% of the capital stock of
Chemtura’s first-tier foreign subsidiaries (the “Foreign Stock Pledge” and, together with the
Domestic Stock Pledge, the “Equity Collateral”). The Pledge Agreement was amended on July
31, 2007 (the “First Amended Pledge Agreement”) to, among other things, limit the amount of
2 All of the Credit Agreement Obligors are Debtors in these chapter 11 cases.
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secured Prepetition Credit Facility Debt in a manner consistent with restrictions in the indentures
for the Debtors’ unsecured notes.
2. The Unsecured Notes
16. As of the Petition Date, in addition to the Prepetition Credit Facility, the Debtors
had the following funded debt obligations: (i) $370 million in respect of certain 7% unsecured
notes due 2009 issued by Great Lakes Chemical Corporation and guaranteed by Chemtura (the
“2009 Notes”); (ii) $500 million in respect of certain 6.875% unsecured notes due 2016 issued
by Chemtura and guaranteed by all or substantially all of the other Debtors (the “2016 Notes”);
and (iii) $150 million in certain 6.875% debentures due 2026 issued by Chemtura (the “2026
Notes” and, together with the 2009 Notes and 2016 Notes, the “Notes”).
17. As discussed in more detail below, provisions in the indentures governing the
Debtors’ unsecured notes restricted the Debtors’ ability to secure obligations or other
indebtedness without triggering equal and ratable liens for the benefit of the holders of the Notes.
In an attempt to prevent triggering the Debtors’ obligations to equally and ratably secure the
Notes, the Debtors’ First Amended Pledge Agreement, and later, the Second Amended Pledge
Agreement (as defined below) limited the amount of secured Prepetition Credit Facility Debt to
the amount permissible under the most restrictive Note indenture without requiring the granting
of equal and ratable liens (the “Secured Obligation Cap”). The most restrictive Note indenture,
in turn, limits such permissible secured obligations to 10% of Consolidated Net Tangible Assets
(as defined below).
B. The Preferential Transfers of the Inventory Liens
18. During 2008, the Debtors’ financial performance began to deteriorate drastically
and they were faced with significant liquidity and covenant concerns. Indeed, during the fourth-
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quarter of 2008, Chemtura was unable to comply with the leverage and interest coverage
covenants under the Prepetition Credit Facility and was the subject of a going concern
qualification by its auditors. The Debtors sought the Prepetition Lenders’ forbearance from
declaring events of default and exercising available remedies based on these covenant violations.
19. Towards that end, on December 30, 2008 – well within the preference period – the
Debtors granted the Inventory Liens to the Prepetition Agent in the Second Amended and
Restated Pledge and Security Agreement (the “Second Amended Pledge Agreement”). In return,
the Prepetition Lenders agreed to waive Chemtura’s compliance with certain financial covenants
and events of default under the Prepetition Credit Agreement for the period from December 30,
2008 through March 30, 2009, pursuant to the Waiver and Second Amendment to the Amended
and Restated Credit Agreement (the “Waiver”).
20. Upon information and belief, the Prepetition Lenders sought the grant of the
Inventory Liens because the value of the Equity Collateral pledged in July, 2007 had deteriorated
significantly in the interim, and would be insufficient to fund even a fraction of the then-
outstanding secured obligations under the Prepetition Credit Facility. The transfer of the
Inventory Liens must therefore be avoided as a preference, since the Prepetition Lenders would
receive more than they would in a hypothetical chapter 7 proceeding had the transfer not been
made.
C. The Preferential Transfer of the SPV Equity Lien
21. The Waiver required that the amount of debt outstanding under the Prepetition
Credit Facility could be no more than $287 million by December 31, 2008. As of such date,
Chemtura already had borrowed a total of $272 million – $182 million in revolving debt and
$90 million in letters of credit. Thus, Chemtura only had approximately $15 million in potential
available liquidity under the Prepetition Credit Facility through March 30, 2009.
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22. Another consequence of the Debtors’ deteriorating financial condition was the
Debtors’ inability to utilize fully an existing receivables securitization facility (the “Old
Receivables Facility”). Consequently, as a condition of the Waiver and in order to obtain access
to additional liquidity, the Debtors obtained financing through a new receivables facility (the
“New Receivables Facility”).
23. The New Receivables Facility was established pursuant to (i) the Receivables
Sale Agreement, dated as of January 23, 2009 among Chemtura, Great Lakes, GLCC Laurel
LLC, and Biolab, Inc., as sellers (collectively, the “Receivables Facility Sellers”), and the
Receivables SPV, as buyer (the “Receivables Sale Agreement”) and (ii) the Receivables Purchase
Agreement, dated as of January 23, 2009, among the Receivables SPV, as seller, Chemtura, as
the servicers, Citicorp USA, Inc. as agent, and Citigroup Global Markets Inc., as arranger, and
certain purchasers3 (the “Receivables Purchase Agreement”).4
24. Pursuant to the New Receivables Facility, the Receivables Facility Sellers sold
receivables to the Receivables SPV, which in turn, sold fractional ownership interests in the
receivables to participating purchasers who were also granted a security interest in all of the
receivables owned by the Receivables SPV. The maximum amount of availability under the New
Receivables Facility was $150 million. Upon the establishment of the New Receivables Facility,
the Prepetition Credit Facility was further reduced from $500 million to $350 million – a dollar
for dollar reduction.
3 In addition to Citicorp USA, Inc., as agent, the following banks were purchasers under the New Receivables Facility: Citicorp USA, Inc., Bank of America, Wachovia, Credit Suisse (Cayman Islands Branch), Royal Bank of Scotland, Sumitomo Mitsui Banking Corp., ING Capital LLC, Calyon (New York Branch), The Bank of Tokyo – Mitsubishi UFJ Ltd., and The Northern Trust Company (collectively, the “Receivables Facility Lenders”). All of the Prepetition Receivables Facility Lenders were also Prepetition Lenders under the Prepetition Credit Facility. 4 The Receivables SPV was incorporated on December 18, 2008, and prior to its wind-down was a special purpose, bankruptcy remote affiliate of the Debtors.
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25. The Receivables Facility Sellers obtained funds through the New Receivables
Facility by selling their receivables to the Receivables SPV at a discount, which, upon
informatio